Investment: Mears to keep followers happy NO PAIN, NO GAIN

SHARES OF Mears, a little maintenance services group, have enjoyeda splendid run since it reported interim figures at the end of lastmonth. They are now 28.75p after touching 31.5p. Analyst RogerBrocklebank at the Old Mutual investment group believes there is acase for a price much nearer 50p.

They arrived in the no pain, no gain portfolio in April at 23p. Imust admit I was apprehensive about them and at the last momentalmost reversed my decision to include them.

My anxiety stemmed from a sudden surge in the share price. When Iexamined the company I was impressed by its attitude, management,prospects and record. At the 19p they then stood, I felt, the shareslooked an ideal buy.

But the rapid advance to 23p put a different complexion on them.Such a movement by the low-priced share of a small company looked asthough I had missed the boat? Luckily, I stayed aboard. And theportfolio is the beneficiary.

When I alighted on Mears it had just produced encouraging figureswhich, I felt, the stock market had overlooked, as it often does withsmall companies. An internet tip service apparently came to the sameconclusion and its enthusiastic online comments spurred the suddenadvance.

Now the Mears half-year figures have underlined the company'sundoubted strength. Interim pre-tax profit was pounds 850,000 againstpounds 412,000 with the dividend (an often-overlooked factor inmodern investment) again increased.

Mr Brocklebank sees year's profit of the AIM-traded group emerginga little below pounds 2m with pounds 2.4m next year. My guess is heis being rather cautious.

Mears is run by Bob Holt, ex-Mitie, the highly successful buildingservices group. It could be argued that Mears closely resembles themuch-smaller Mitie of a few years ago. Mr Holt, who is 45, was oncechief executive of Tottenham Hotspur and was at Blue Arrow, thecontroversial recruitment group.

He is keen to expand Mears, and acquisitions, probably in theNorth, are likely. But with its growing profitability and a strongorder book - around pounds 110m - it must look an enticing takeovertarget. It is thought to have had approaches but talks clearlyfailed. Some believe it is such a well-run and progressive companythat it cannot hope to retain its independence much longer. At thepresent price it is capitalised at only pounds 16.6m.

A great many successful small companies are, on traditionalmeasurements, undervalued. Mears is no exception. The shares areselling at less than 10 times prospective earnings, roughly half thesector average. A direct comparison with Mitie, probably selling onmore than 50 times expected earnings, is unjustified. Even so such ayawning rating gap is too wide.

Another feature in Mears favour is that unlike many small players,it is not shunned by institutional shareholders. Eaglet InvestmentTrust, admittedly specialising in small companies, has 20.6 per cent.Other declared holdings take the institutional presence to more than40 per cent. Directors have 20.3 per cent.

The group operates from 30 branches and has extensive links withlocal and other public authorities. Most of its contracts are long-term.

It is under contract to maintain around 140,000 local authorityhouses, out of a total of 3.2 million or so. Therefore the potentialto win new business on that front is considerable. In fact,Government plans to increase spending on housing and education shouldensure Mears continues to prosper.

Certainly it seems, at least on trading grounds, that Mears willbe able to keep its followers happy. But the stock market's failureto embrace small companies could inhibit the shares. But they aredestined to retain their membership of the no pain, no gain portfolioand even at their present price are still a worthwhile buy.

Dru Edmonston at stockbroker Durlacher is, like Mr Brocklebank,keen on the shares. He thinks they are a buy up to 35p.